After reading this article you will have insight into the following costs and how to prepare for them:
- The real estate agent’s commission
- Rates and tax clearance figures
- Bond cancellation fee
- Levy clearance figures
- Exit levies
- Compliance certificates
- Removal cost
There are a lot of costs associated with selling your property. Some of these costs are obvious, but some of these costs often come as a surprise to many sellers. In this article, we will look at the different costs that you should be aware of when you sell your property.
We will also look at how to provide for these costs if you don’t have the money upfront. If these matters are not all taken care of, the property cannot transfer into the new owner’s name. This basically means that you cannot get paid for the sale of your property as the conveyancing attorney may only make a payment to you once the property has registered successfully in the name of the new owner.
The real estate agent’s commission
The first cost to consider is the real estate agent’s commission. This might be different from agency to agency, but it is usually a set percentage of the proceeds of the sale of the property and can range anything from 3% to 8%. Remember, you can negotiate anything in property. The real estate agent’s commission is no different. You don’t have to pay the proposed commission. Obviously, your negotiation must be reasonable otherwise, the agent may agree to sell the property, but may not put his heart and soul into the marketing and sale of the property.
In almost all cases, the real estate agent’s commission will exclude VAT. When you negotiate, see if you can get the commission to be inclusive of VAT.
Some real estate agencies ask for a set fee for the sale of the property regardless of how much it sells for. Whichever agency you decide on, just be clear on what you are getting for that commission.
The real estate agent’s commission is often a grudge purchase. So, you always want to ask the agent what that fee covers. If you know what you are paying for you may not feel so bad about paying it.
Once you know what the price is that you want to go to market with, you can subtract the agreed percentage for the commission from that amount. Luckily this commission only gets paid once the property registers in the new owner’s name. The conveyancing attorney pays this commission over to the real estate agency from the proceeds of the property.
Rates and tax clearance figures
The second cost to consider is the rates and tax clearance figures. This is payable to the local municipality and they normally require you to pay three months’ worth of rates and taxes upfront. This is to ensure that you don’t stop paying your rates and taxes while the property is in the process of transferring to the new owner.
If you want to budget upfront, you can get an idea for the cost by taking the average monthly rates and taxes amount and times that by three months. So, if your monthly rates and taxes bill is around R2000, you know you can budget R6000 for the rates and taxes clearance certificate. This cost is unfortunately payable by you before the property can register in the new owner’s name.
Bond cancellation fee
There is also a bond cancellation fee. This is exactly what it says. If the property is still bonded with a bank, you must pay the bank a fee for cancelling your bond. If you think this is ridiculous, wait until you hear that you also must pay a penalty if you don’t give the bank at least a three-month notice period. Each bank calculates this penalty differently.
So, when you decide to sell, notify the bank immediately. Even if you get a buyer in the next two weeks, it will take about three months for the bond to transfer from your name into the new owner’s name. By now you might have served your notice period. If your property takes longer than three months to sell, you must contact the bank again after three months and renew that notice period otherwise, you’ll end up having to pay a new penalty. As mentioned, these costs differ from bank to bank. You’ll have to get the exact figures from the bank.
Luckily, this is not an upfront cost and gets added to the home loan amount that is still outstanding.
Levy Clearance Figures
If your property is in an estate or a complex, you will also be required to pay levies for three months in advance. This is so that you don’t miss paying levies while the property is still in your name. If the property transfers into the new owner’s name before the three months is up, you get a refund, but don’t count on this money as you normally wait a while for it. So, if your monthly levy is R1500, you can budget an amount of R4500. This is unfortunately an upfront cost.
Okay, I must honestly say, this is the most ridiculous levy that I have ever heard of. Some estates enforce an exit levy. This is normally a percentage of your sales price. If your property is worth a few million rands, you are in for a hefty amount.
So, the next time before you buy in an estate, just check if there is an exit levy payable and what that amount is. When I asked a real estate agent who sells in a very prominent estate what this levy is for, his answer was so that you can leave the place in the condition that you found it. Like I said, ridiculous, so just make sure of that.
There are several compliance certificates that need to be obtained and paid for by the seller.
Electrical compliance certificate.
The most common one that every seller needs to get is an electrical compliance certificate. This certificate should not be older than two years. Depending on the size of your property, you’ll normally pay between R2000 and R5000 for the electrical compliance certificate. However, if there are major electrical faults with the property, the electrician will quote for the additional work, and you could end up paying thousands for an electrical compliance certificate.
Electric fence and gas compliance certificates
If you have an electric fence and gas installation you will also be required to get compliance for each of these to assure that the electric fence is working and that the gas has been installed by a qualified gas installer.
A water installation certificate
If you live in Cape Town, and in Cape Town only, you must also submit a water installation certificate. This by-law was passed by the City of Cape Town in 2011.
The main reason for this certificate is…
- To state that the water installation conforms to the National Building Regulations,
- That the property’s water meter is registering,
- That there are no defects that can cause water to run to waste,
- And that there are no rainwater leaks into the sewerage system
And lastly, there is the cost of the removal van. Depending on how far you are moving and how much stuff you are moving, this could run up to tens of thousands of Rands. So best you get at least three quotes long in advance so that you know what is coming. If you are moving to a different city, and you are not very attached to stuff, it may even be more cost-effective to sell everything and buy new furniture in your new city. Weigh up your options on this one. New furniture may actually be exciting.
Consolidating the cost
So, as you can see, just to sell your property can cost you thousands before you have even seen any profit on the sale of the property. Knowing these costs upfront can help you determine your asking price. In other words, you need to take into consideration what you still owe the bank, what all the upfront costs are, what gets subtracted from the sale of the property, and what profit you would like to make on the property. This will help you to determine not just the sale price, but also what the minimum offer amount is that you’ll accept from a buyer.
A possible solution to paying for all these costs.
Now many people do not have these thousands upfront. In fact, they may be selling because of financial difficulties. If this is your situation, you may want to consider bridging finance. A bridging finance loan is a short-term type of loan that sellers get access to, in order to pay for all the costs associated with the sale of the property, while they are waiting for the proceeds from the sale of the house. Bridging finance companies will provide you with a loan if they have proof that the proceeds of the house will cover the loan. Many bridging finance companies will also not lend the full amount of the proceeds and it may only be up to 80% of the proceeds that you’ll get back from the sale of the house. Like most short-term loans, the interest that you pay on a bridging loan can be remarkably high.